Healthcare organizations face critical challenges as they make the transition from traditional fee-for-service care to accountable care organizations (ACOs). Becoming an ACO requires a very different set of management strategies and resources, not just a new legal structure and accounting systems. A recent New York Times article about Cornerstone Health Care of High Point, NC illustrates why the transition can be so difficult. And how hard it is to get right.

As described in the article, Cornerstone did get a number of things right, but may have moved too fast, too soon. It was initially one of the small fraction of ACOs that generated savings through initiatives, such as walk-in clinics and special programs for patients with complex chronic illnesses, that reduced their ER visits and hospital admissions.

However, moving too fast to an ACO model, faster than its payers were willing to adapt, reduced its fee-for-service revenues and allowed a number of its specialists to be picked off by a nearby competitor that remained more firmly committed to a fee-for-service model. Cornerstone also did the right thing by developing a sophisticated computer system and related competencies needed to manage accountable care. But its limited financial resources required it to borrow funds to develop the system which led to financial problems later as fee-for-service revenues declined once specialists left.

Cornerstone has been purchased by the Wake Forest Baptist Health System, which is providing deeper pockets as well as other resources to continue the transition. In return, Wake Forest Baptist has benefited from Cornerstone’s depth in primary care as well as its capabilities for managing accountable care.

A computer simulation called Mastering the Transition to Capitation, developed in the 1990’s and used by a number of healthcare organizations, helps to explain why Cornerstone encountered these difficulties. The simulation explains why the transition must be done at just the right pace with attention to both a healthcare organization’s fee-for-service and capitated businesses.

Participants in the simulation learned the importance of continuing support for the fee-for-service business, making necessary investments in technology and staffing, or they would lose specialists needed for revenue generation, exactly as Cornerstone experienced. Those fee-for-service revenues were also critical for making investments in information infrastructure essential for operating efficiently as a larger fraction of their patients became covered by capitated arrangements. A more gradual shift was also important for doctors to learn how to function under a capitated model and for the organization to build up primary care capacity that could care for patients less expensively and make it less dependent on specialists.

The metaphor of “balancing two boats” helped participants visualize the gradual transition as a shift in weight from one canoe to another as both went dashing down a rapid stream. This metaphor is applicable to many types of transitions. As organizations make a transition from one set of activities to another, investments in both old and new activities must be sequenced in a way that is mutually supportive.

It may, for example, be necessary to continue making investments in scanners and endoscopy suites to generate the fee-for-service revenues necessary to finance the eventual shift to a style of medicine in which fewer scans and endoscopies are utilized. It’s also necessary to avoid cross-currents, negative side effects from one set of investments that undermines the other. Adopting practices and policies that favor accountable care too soon may cause the premature loss of physicians with a fee-for-service mindset whose revenues are needed to fund the transition to accountable care.

The ReThink Health Dynamics Model is a simulation that helps its users understand another kind of transition. The model encompasses a region’s system of population health and health care delivery, and is currently being used to support regional health system transformation. It helps regions understand the need to avoid particular pitfalls that plague transitions from fragmentary patterns of care to systemic strategies for better health and care delivery at a reasonable cost. These pitfalls include:

Proposing lopsided strategies that emphasize short-term improvements at the expense of long-term gains or focus on the long-term and that fail to produce results needed to maintain stakeholder support in the interim.

Alternatively, focusing too much on reducing health risks and missing opportunities to produce savings downstream that can be reinvested to make upstream programs and care delivery improvements financially sustainable.

Failing to make a shift toward global payment and, as a result, having savings from more efficient care eroded as “supply push” responses create new utilization to sustain fee-for-service incomes.

Creating more demand for primary care, through medical homes and better adherence to care guidelines, but not increasing the capacity of primary care and producing care bottlenecks as a result.

Focusing exclusively on certain groups such as children or the elderly and avoiding opportunities to improve outcomes and save money elsewhere.

Avoiding these pitfalls on the way to health system transformation requires coordinated, well-balanced strategies that include initiatives in both upstream prevention and downstream care delivery, reinvestment of savings, shifts to global payment, and attention to the population’s social needs that affect their health.

What pitfalls have you encountered on your way to transformation?

The personal views and opinions expressed in this blog (and in any comments) are those of the original authors only, and do not reflect the opinions of The Rippel Foundation or ReThink Health. Neither The Rippel Foundation nor ReThink Health is responsible for the accuracy or validity of any of the information contained in the blog or any comments. All information is provided on an “as-is” basis.